Agency principals ask us all the time how to measure the financial success of their agencies. When we respond, many seem disappointed. "That's it?" they ask. "Those are all the numbers you track?" The truth is, the agency business is a pretty simple business. Following are the most important metrics for agencies.
P.S. Cut this out and hang it near your desk. Close scrutiny each month will make a significant difference in your bottom line profits.
- AGI (GP) – Shoot for 40-45% of billings based on how much media you place in ratio to billing.
- Payroll – Including benefits, employers' FICA and what a working owner takes in regular pay. Payroll should be no more than 50-55% of AGI. Remember to count your regular freelancers in employee salaries as it relates to metrics.
- Bodies – 1 to 1.5 people per $125,000-$150,000 in AGI
- Net Operating Profit – 25% of AGI
- Assets – 15% in cash or equivalents
- Accounts Payable – No more than 35% of liabilities
- Accounts Receivable – 50% of assets
- Fixed Assets (furniture, cars, computers, etc.) – 25% of assets
- Net Worth – 30% of assets, but may vary in an "S" corp.
- Long- and Short-term Debt – No more than 15% of liabilities
- Liquidity in your agency should be about 2 to 1.
No more than one client that comprise more than 25% of your AGI.
No more than two clients that each comprise more than 12.5% of your AGI
No more than four clients that each comprise more than 6.25% of your AGI
No more than eight clients that each comprise more than 3.125% of your AGI
* This formula may be a little too rigid, but you get the point.
Look at each client on a monthly basis the same way you look at the total financial statement. Each client is presented each quarter in the following way: